Letters May Help Claims Flood

The state Department of Taxation has decided to make it easier for federal pensioners and others who want to beat the May 1 deadline for applying to get state income tax refunds for tax year 1985.

Deputy Tax Commissioner Raymond Dobbins said today that the department is advising tax preparers to send the following information to the department in lieu of filing an amended tax return:

* A copy of the front and back of the return to be amended.

* A copy of the pension income statement for the appropriate year.

* A letter certifying that the pension income is included in the federal adjusted gross income reported that year, and that the taxpayer wishes to claim the appropriate exemption.

Dobbins said this information should be sent to: State Department of Taxation, P.O. Box 5126, ichmond, 23220.

The simpler method of claiming refunds for previous tax years is the latest of many state responses to a March 28 decision by the U.S. Supreme Court that said states must tax federal pensions the same way it taxes the pensions of retired state and local government workers.

Virginia - which collects $150 million a year in income taxes from about 200,000 federal pensioners - is one of 14 states affected by the ruling because it does not tax state and local government employees' pensions.

State officials at first said the court ruling did not mean that federal workers could claim refunds for tax years before 1989. But legislators across the state, faced with an election year and a need to decide how to cope with the court ruling, have been advising constituents to file amended return claims to preserve their rights by the May 1 deadline for tax year 1985.

Despite state bureaucrats' stated position, Virginia's federal pensioners have begun flocking to tax services asking for protection of their legal standing in case it is ultimately determined they are due refunds of state income taxes they've already paid.

While the state has been taxing federal pensions since 1942, state law restricts claims for retroactive tax refunds to three years. But Del. C. Richard Cranwell, D-Roanoke, said another court ruling could decide that the limitation does not apply in this case.

State Secretary of Finance Stuart W. Connock said at first that claims for refunds would be denied because the high court decision did not order otherwise.

At the same time, the tax department, anticipating that federal retirees would claim refunds anyway, set up a post office box for the claims so they all would be funneled to the same location.

Until Thursday, state officials and tax preparers said the process required the filing of an amended tax return for previous years.

Garnett Walker, a vice president for the Virginia franchise of H&R Block Inc., said a state tax official told him Thursday tht sending a letter of intent would accomplish the same thing.

John Gill, of Gill and Jones PC, a Denbigh accounting firm, agreed that a letter would serve instead of an amended tax return for statute-of-limitations protection.

"It's called filing a `protective claim,' but there's really no reason to do that if you have the forms," Gill said.

His firm is sending letters to its clients who receive federal pensions, urging them to file amended returns for 1985.

The state likely will resist having to pay the refunds, he said.

"We're anticipating a fight," he said. "A good part of our business is litigating tax problems."